A3 Freight Payment Blog

Thursday, July 12, 2012

Financial Risks and Freight Payment: EFTs vs. Paper Checks

The below is an excerpt from the publication A Guide to the Financial Risks of Freight Payment Providers which
was produced by A3 Freight Payment for the benefit of customers and prospects. For
the complete publication, CLICK HERE .

A freight bill audit and
payment company that is intent upon serving a client’s needs will employ an
aggressive program to pay carriers by means of Electronic Funds Transfers
(EFTs). The company will avoid paper checks and encourage carriers to accept
EFTs. A large proportion of paper checks could be a warning sign that a freight
payment company does not completely embrace its fiduciary role.

Paper checks take time to reach
their destination through the mail before they become “good funds” in the
account of the payee. During the time, the freight payment company can earn
interest from those funds. This time is called mail float. Once the checks are
deposited into the bank, they take a day or so to be removed from the account
of the freight payment company. This time is called Fed float and is also an
opportunity to earn interest.

With interest rates at record
lows, the potential earnings from float available to freight payment companies are
very limited, at present.

However, the prevalence of
check-based payments at a provider could point to a much more sinister
situation. In cases of fraud where a freight payment company may be “kiting”
checks (using new deposits to cover old checks), the mail float and fed float
provide valuable time to keep the shortfall invisible and allow such a scheme
to continue. This kiting of payments was a hallmark of all of the major cases
of fraud in freight payment during the early 2000s, including both the STI and
Computrex cases (Boyce, 2003). These companies used check payments as a way to
hide the fact that they had stolen freight funds to cover operating losses of
the business and/or its subsidiaries and affiliates.

An aggressive EFT program is
the mark of a solid provider willing to embrace its role of providing
best-in-class payment features to its customers.